Facing Tough Times? Here’s What to Do When You Can’t Pay Your Bills

That pile of bills may suddenly look like a mountain if you’re facing tough times financially.

We’re big fans of budgeting, paying your bills on time and avoiding debt, but under extreme circumstances, you may need to decide which bills to pay and which to delay — and perhaps even lean on credit cards.

“It’s not a good, sound strategy in normal times,” said Chad Parks, founder and CEO of  Ubiquity Retirement + Savings. “But when things are tough, you gotta do what you gotta do.”

We’re here to help you prioritize when you can’t afford to pay your bills.

What Can I Do if I Can’t Afford to Pay My Bills?

There are differing levels of crisis management, but there are a few basics you can’t ignore if you’re in a truly desperate financial situation.

“The easy answer is: home, food and probably transportation,” Parks said. “The rest you can probably wait on in the worst-case scenario.”

So you know you have to pay for the essentials, but even figuring that out can be overwhelming. Here’s a four-step process for prioritizing your bills.

1. Create a Barebones Budget

OK, it’s not like the coronavirus is an excuse to throw every piece of financial wisdom out the window. But it might mean adjusting your budget during a crisis.

The best place to start figuring out what you owe and what you can pay is by writing it out on a piece of paper.

“Get a snapshot all on one page because what generally happens with people is that we’ve got almost everything on automatic,” Parks said. “You lose touch with the real numbers — you forget how much things are and you forget the impact that can have on your monthly budget.”

To help prioritize, really assess your must-have expenses to survive. That includes food, but consider whether you can cut your grocery or takeout budget. Even things like cable might seem essential since you’re stuck at home, but could you downgrade from the premium package?

And don’t forget to check your credit card bill for recurring expenses, including subscription services you may have forgotten you had.

2. Add Up Your Sources for Funding

When you can’t pay your bills with your current income, you typically need to cut expenses and/or find additional income.

We’re still in favor of using a side gig for extra income. But if you’re recently unemployed and wondering where to get money to cover this month’s expenses, you need to locate all available sources and start thinking ahead.

Just like you wrote down your expenses, you should write down your sources for funding, starting with your income, if there is any. Remember to include money from side gigs, unemployment assistance and any money you may be receiving from government relief efforts (although you shouldn’t consider it an immediate source until you have the check in your hands).

Those relief efforts may come in the form of a check sent directly to you as well as local, state and federal programs and incentives. Check your government’s website for daily developments, as new sources and programs are being announced regularly.

Also include the total amounts in your checking and savings accounts — and yes, if you have an emergency fund, the time to tap it is now.

Next, calculate how much available credit you have on your credit cards and any home equity lines of credit you may have. You may also be able to apply for a personal loan from your bank or credit union.

Again, we wouldn’t normally suggest using credit cards to pay for basic living expenses, but you should include every potential source.

Two accounts that Parks wouldn’t recommend tapping if at all possible: your 401(k) or 403(b). Besides the hurt doing so could put on your long-term retirement strategy, their protected status could become important if you don’t recover from this financial crisis and end up filing for bankruptcy.

“The one thing that most people don’t realize is that a 401(k) or a 403(b) is what’s called a qualified or protected asset,” he said. “That means that in a bankruptcy proceeding, they cannot make you use that money to settle your debts.

“If it was me, I would protect that asset at all costs because if I think bankruptcy is at all on the horizon, at least I could keep that whole.”

3. How to Deal With the Bills You Can’t Pay

Now compare the lists: expenses vs. funds. Then project each out for the next six to 12 months. It might not be pleasant, but at least you’ll know what you’re facing.

The one thing you shouldn’t do if you still can’t pay your bills: Ignore or dodge them. Besides the short-term consequences — car repossessed, utilities shut off — there’s also how it can affect your finances after the emergency has passed.

“You don’t want to affect your credit negatively in this time period if you can help it,” Parks said.

Whether it’s a landlord, credit card company or other lender, dealing with an organization directly and honestly will give you a better chance of emerging from this period in relatively decent financial shape and perhaps even saving on costly fees and penalties.

Practice what you plan to say before you call, including a brief explanation of why you’re unable to pay (lost job, illness) and how the lender can help (waive a late fee, accept a smaller payment).

Be realistic about your expectations.

“It’s not going to be automatic — you have to call and say, ‘I would like to take advantage of that, and here’s my circumstance,’” Parks said. “And if there is no mandate, no help coming from governmental agencies, then it can’t hurt to ask.”

4. Get Back on Track

Keep in mind that all of these measures should be temporary ways to keep your head above water during a crisis. As soon as you’re able, you should return to your former strategies of paying down debt and building up your savings.

But these temporary measures could help prevent permanent damage to your finances and protect your family, so don’t be afraid to pursue every option available.

Tiffany Wendeln Connors is a staff writer/editor at The Penny Hoarder. Read her bio and other work here, then catch her on Twitter @TiffanyWendeln.